A few years ago, the startup market was setting one record after another, fueled by low interest rates, U.S. government stimulus spending to counter the COVID-19 lockdown and AI enthusiasm. AI fever has gotten worse due to the smoke-and-mirrors of ChatGPT and other large-language models, but now interest rates are higher, government stimulus is waning and startups are struggling. The fact that startups are suffering while the overall U.S. stock market is surging suggests that investors are finally realizing that startups no longer are $100 bills on the sidewalk.
One of Gary’s former students started one of the first fund-of-funds for hedge funds. The most important part of his job was identifying hedge funds that had good ideas and were run by competent, honest people. He often lamented that the hedge-fund boom was bringing in people who had flimsy ideas, little experience and, in some cases, questionable ethics. It seemed that anyone who had ever taken a finance course and made a profitable investment thought they were qualified to start a hedge fund. Too many were able to raise money; too few invested that money wisely. The scent of money that led many unqualified and inexperienced people to start hedge funds also has led many unqualified and inexperienced people to launch startups. …
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